all credit for this goes to NerveGas from #iphone irc chat channel over at irc.osx86.hu, anyway, what hes done is bascially open up ssh on the iphone which will then open it up to remote access and upload of more shell commands and 3rd party apps, you can ssh in from any mac terminal
Original Page

Working SSH Instructions by NerveGas

Previous instructions on the net have required the use of restore mode to set
binary permissions. Unfortunately, restore mode doesn't work with all public
versions of iPhoneInterface I've tried. The instructions below work by
overwriting an existing binary on the system with chmod, and then calling it
with the appropriate arguments to set permissions. The result is a fully
functional SSH setup. You can then proceed to uploading your own world builds,
or other programs to execute via commandline.

While still connected to iPhoneInterface, make a backup copy of
/usr/sbin/update:

cd /usr/sbin
getfile update

Rename this to update.original on your local filesystem

Now copy the 'chmod' binary to 'update' and upload it back to the
iPhone:

cd /usr/sbin
putfile update

Step 4: Overwriting the update configuration

Now the 'update' binary is really 'chmod', and has execute permissions! We
just need to tell the iPhone to chmod next time it boots. To do this, we
download /System/Library/LaunchDaemons/com.apple.update.plist and add our
own arguments to ProgramArguments:

0 /usr/sbin/update
1 555
2 /bin/chmod
3 /bin/sh
4 /usr/bin/dropbear

Save the new plist and upload it back to the iPhone:

cd /System/Library/LaunchDaemons
putfile com.apple.update.plist

While we're here, lets also:

putfile au.asn.ucc.matt.dropbear.plist

Step 5: Reboot the iPhone twice.

The first reboot should set the permissions on the dropbear and related
binaries. The second reboot should start dropbear, so you can ssh to it:

ssh -l root [IP ADDRESS]
The root password is 'dottie'.

Step 6: Replace the original update and com.apple.update.plist files

Don't forget to put the old update files back. Rename update.original back
to update, and delete the extra ProgramArguments you added to
com.apple.update.plist. Now put them back:

cd /System/Library/LaunchDaemons
putfile com.apple.update.plist

cd /usr/sbin
putfile update

Step 7: Change the root password

If you don't like 'dottie', you can generate a new encrypted password
by running:

perl -e 'print crypt("MYPASSWORD", "XU");'

Where MYPASSWORD is the new password you want, and XU is a random two-letter
salt. Copy the encrypted output and replace the existing one in
/etc/master.passwd on the phone.

You're done! Enjoy!
-NerveGas

after running into so many walls its not funny, i decided to give up for now... this whole process requires a mac/linux box with compiling tools. Any mac users out there wanna give it a shot? I will try to make a windows version of this or at lesat find programs that can replicate these commands for windows

can anyone post an update of the kinds of advancement or tinkering you've accomplished using this very smart hack...whoever came up with this had their thinking cap on. Wondering where people are going wit it.

ive read so many tutorials and im still confused, winscp isnt working for me, i did ssh install and it went through, putty times out - yes i put in password and ip perfectly. terminal icons where are they? and what does it do, someone help me out lol pleaes